Las Vegas Sands (NYSE:LVS) received some much needed good news today as Bernstein released a note saying the company is undervalued. Las Vegas Sands has been hammered by short sellers in the last few months as have many other casinos. With the slowdown in Vegas very apparent in everything from gambling to real estate, short sellers pilled onto this stock with a beta over 3.5. However, with the stock down as low as $1.50 recently there seems to be the perfect combination of value investors jumping in and short sellers covering, in other words, a short squeeze that can produce rapid gains. The stock is over $2.25 right now, which is a 50% appreciation in two days. Here is CNBC’s Squawk on the Street discussing LVS:
Bernstein is referring to assets such as properties: The Venetian Las Vegas, The Palazzo, The Sands Expo Center in Las Vegas, The Sands Macao, The Venetian Macao, The Four Seasons Hotel Macao. The company has significant exposure to the gambling destinations for the world’s most wealthy nation in the United States, and the world’s most populous nation in the People’s Republic of China. There are other less vital properties that the company owns and operates but there is no doubt that the crown jewels are Vegas and Macao.
Bernstein’s note placed a target price on LVS at around $8, which seems like a stretch until Vegas recovers. However, the stock seems to be starting to recover as the short squeeze continues and 50% in two trading days is a major step in the right direction. If they can return to profitability in the next year then we would not be the least bit surprised to see LVS in the range that Bernstein is referring to. At Ockham, we have an Undervalued valuation on LVS because the company is selling for a huge discount to historical norms of price-to-sales and price-to-cash flow. Of course, the stock is down 97% in the last year, so anything down that much will look attractive on a historical basis.
The company expanded too much toward the beginning of the global recession, and now are dealing with the fallout. There is some concern over the amount of debt (more than $10 billion) that the company has to finance their aggressive projects, but they certainly have valuable assets were they in desperate need of cash. Revenue is continuing to grow and there is a decent $3 billion in cash to cushion any upcoming debt obligations. We think that there is a fair amount of protection against bankruptcy, that makes Las Vegas Sands a decent buy and hold candidate at these levels, if you can handle the volatility.